Sioux Valley Hospital in Sioux Falls, S.D., learned that getting and keeping tax-exempt status for hospital health clubs is not as easy as your April 8 article ("Focus on fitness," p. 38) would lead your readers to believe.
In 1994, the Supreme Court of the State of South Dakota found that Sioux Valley's wellness center was not a charitable organization. The court rejected the argument that wellness centers are tax-exempt as healthcare facilities. The court noted that if it adopted such a broad definition of healthcare, all physical activity and healthy activities would be exempt.
That decision is consistent with Internal Revenue Service policy stated in Private Letter Ruling 9110042 that the IRS "has not recognized the provision of fitness services to healthy people as the promotion of health." Its position is further explained in the IRS Exempt Organizations CPE Technical Instruction Program Textbook: "The IRS position is that the health club promotes health, but only in a manner that is collateral to the providing of recreational facilities, even where a communitywide benefit is conferred. While innumerable recreational activities may constitute a form of promotion of health in that exercise generally may assist in the prevention of illness and be consistent with generally recognized medical principles...it cannot be said that all such activities can be recognized as promoting health (under rules governing tax-exempt organizations)."
As part of a program aimed at helping hospitals enter the fitness club industry, the International Health, Racquet and Sportsclub Association commissioned Coopers & Lybrand to take an unbiased look at under what circumstances hospital clubs should operate as for-profit vs. not-for-profit. The firm's report makes clear that hospitals should not organize health clubs as tax-exempt without careful consideration of all the costs and risks.
The 2,400 member clubs of the IHRSA welcome the emergence of taxpaying fitness clubs into the commercial health club market. Working together, hospitals and the health club industry can improve the health of this country while preserving the economic health of our communities by ensuring that all businesses pay their fair share of taxes.
HELEN A. DURKIN
Director of government relations, IHRSA, Boston
